Real Estate Law Update: December 2013If You Own A Second Home Or A House For Your Mother In Law, Here’s What You Need To Know About The Property Taxes On It

Not too long ago, the Arizona legislature changed the law on property taxes for second homes. As part of a much larger piece of legislation that established the Arizona Commerce Authority, the legislature changed the rules for classifying residences for property tax purposes, with accompanying new reporting requirements.

Property taxes on Arizona residences are subject to a limitation on the amount assessed for school taxes. It’s commonly referred to as a “rebate,” but it’s really a limitation of the amount that would otherwise be charged under a formula for property taxes levied by counties to support the public schools.

In the past a property would qualify for the “rebate” if it was used for residential purposes and was not leased or rented. A residence that was leased or rented was not eligible for the “rebate.” The result was a higher property tax on residences that are leased or rented than on residences that were not. In other words, if a residence was owner-occupied, the “rebate” applied, and the resulting tax was lower.

Under the new rules, a residence will qualify for the “rebate” only if it is used as the primary residence of the owner, or is rented to a relative of the owner and is the relative’s primary residence. All other residences are subject to the higher tax. In other words, second homes, and homes occupied by persons not related to the owner, will apparently be taxed like rentals, meaning they won’t get the benefit of the “rebate.” The difference can be up to $600 annually.

The law that put these changes in place also says that the county assessor is supposed to send to each home owner, in every even-numbered year, an affidavit on which the home owner must declare, under penalty of perjury, whether the property is the owner’s primary residence or is rented to a relative who uses it as his or her primary residence.

The law isn’t clear about what happens if a relative (or someone else) lives in a house you own without paying any rent (the provision that specifies what properties qualify for the “rebate” talks about the property being “leased or rented” to a relative), but I think that at least if it’s occupied by a relative, it should qualify regardless of whether or not the relative is paying rent. It’s the relationship, not the payment or non-payment of rent, that qualifies it for the “rebate.” It is less clear to me what happens with a house that is occupied by a non-relative who isn’t paying rent (probably not a common situation, I know, but I’m sure it does happen).

And who qualifies as a relative, you may ask? The legislature made us a list: the owner’s natural or adopted child or a descendant of the owner’s child; a parent or ancestor of a parent; a stepchild or stepparent; a child-in-law or parent-in-law; or a natural or adopted sibling.

So if you receive a form from the county assessor asking you questions about whether you own a house somewhere else, where you are registered to vote, the address on your driver license, and similar questions, now you know why. Answer truthfully, of course, but do answer. If you don’t, the county assessor must by law re-classify your property as non-owner-occupied, and your property tax bill will go up as a result.

DECEMBER 15 IS BILL OF RIGHTS DAY

In my September report I reminded you that September 17 was Constitution Day. Did you know that there’s another day officially recognizing the adoption of the Bill of Rights? It’s December 15, which is the day that Virginia’s legislature became the last state legislature to ratify the first ten amendments to the Constitution. That event took place on December 15, 1791.

Bill of Rights Day was officially declared by a joint resolution of Congress and a Presidential Proclamation by President Franklin D. Roosevelt in 1941, on the 150th anniversary of the ratification of the Bill of Rights.

As I said in discussing Constitution Day, if you haven’t read the Bill of Rights since you were in school, go read it. It’s short. You’ll find a copy of it on the web site of the Bill of Rights Institute, at:

Not only is the Bill of Rights short, but it is remarkably direct. Again as I said about the Constitution, if more people read the Bill of Rights, and have a basic understanding of what it says, the country can only benefit.

QUOTE OF THE MONTH

We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

The information contained in the Law Office of DeConcini McDonald Yetwin & Lacy P.C. web site is provided for informational purposes only, and should not be construed as tax or legal advice on any subject matter. The Firm provides legal advice and other services only to persons or entities with which it has established a formal attorney-client relationship.